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Rating Action:

Moody's changed the outlook to negative on Metso's Baa2 rating

20 Jan 2009

Approximately EUR 900 million of long-term financial debt affected

Frankfurt, January 20, 2009 -- Moody's Investor's Service changed the rating outlook for Metso to negative, and maintained its Baa2 Issuer Rating. The rating action was prompted by the material deterioration in the economic climate for the pulp and paper industry and Moody's concern that Metso might be challenged to defend credit metrics required for a Baa2 rating.

Oliver Giani, Senior Analyst at Moody's said: "On the back of a benign business environment Metso distributed in 2008 €425 million cash to its shareholders which exceeded reported net income for 2007 of €381 million. In addition, high inventory levels boosted working capital needs to a historic peak. As a result, by the end of September 2008 Metso had increased its financial debt by €500 million compared to December 2007 which largely eliminated the headroom within the Baa2 rating category that Metso had built-up until then."

"The outlook change to negative reflects the recent sharp deterioration in Metso's operating environment resulting in an outlook for significantly lower order inflow for new equipment and rebuilds from the pulp and paper industry to which half of the Metso's business is exposed. Moody's recognizes that Metso is taking steps to streamline its business operations towards the reduced level of production volume going forward and notes that the company has the capacity for releasing significant amounts of working capital in 2009 after a substantial build-up in the past year. Nevertheless the challenging outlook for capital expenditures in the pulp & paper industry exposes the company to further deterioration of its activity level in the intermediate term, which might put more pressure on profitability, cash flow generation and debt metrics", Giani went on to say. The agency takes some comfort from the fact that the company has developed over the last years a significant share of services which resilience, if proven, could serve as a mitigant to new order developments.

In order to stabilise the Baa2 rating Moody's would require for Metso to evidence that it can over the intermediate term i) maintain its leading market position in the paper machine industry, while offsetting the negative volume impact by expanding its service offering and by diversification into energy efficient products; ii) realize cost savings through capacity adjustments to support an EBITA margin above 7.5 % and iii) generate retained cash flow of at least 25% of net debt. Should the perspectives over the next 12 to 18 months indicate that Metso in all likelihood would be unable to sustain a performance in line with the above guidance, or in case of material impairment or restructuring charges, significant pressure on the rating would build.

Outlook Actions:

..Issuer: Metso Corporation

....Outlook, Changed To Negative From Stable

The last rating action for Metso was on October 31, 2007, when Moody's upgraded the senior unsecured and long-term issuer rating of Metso to Baa2 from Baa3 and assigned a stable outlook.

The principal methodology used in rating Metso was Heavy Manufacturing Industry, which can be found at www.moodys.com in the Credit Policy & Methodologies directory, in the Ratings Methodologies subdirectory. Other methodologies and factors that may have been considered in the process of rating Metso can also be found in the Credit Policy & Methodologies directory.

Metso Corporation, headquartered in Helsinki, Finland, is a leading global supplier of machinery and technology for the pulp and paper industry, rock and minerals processing equipments, and control valves for the energy and selected other industries. The company operates in about 50 countries with 28 thousand employees. For the first nine months of 2008, Metso reported revenues of EUR4.56 billion and a EUR277 million net income.

Paris
Eric de Bodard
Managing Director
Corporate Finance Group
Moody's France S.A.
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454

Frankfurt
Oliver Giani
Vice President - Senior Analyst
Corporate Finance Group
Moody's Deutschland GmbH
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454

Moody's changed the outlook to negative on Metso's Baa2 rating
No Related Data.
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